Opportunities in the Legal MarketIan MuirheadDirector, SIFA

Agenda

• Legal Services Act

• Business structures

• Opportunities

• Points to Consider

Legal Services Act objectives

–Greater competition - development of new and innovative ways of meeting demand

–Access to justice for all consumers

–Better empowered consumers, receiving the right quality of service at the right price

–An improved customer experience with effective redress if things go wrong

–Greater innovation and partnership between lawyers and other professionals

Changes under the English Act• New overarching legal regulator – the Legal Services

Board

• 10 frontline regulators have applied to be recognised as licensors

• “Alternative Business Structures” need only one qualified and practising lawyer

• LSB has decreed that FSA-style principles-based regulation should apply

• Licensees can access external capital

Changes under the Scottish Act

• Law firms can be controlled by lawyers and “other professionals” (= only accountants and surveyors?)

• So no access to external capital

• A better outcome for small firms but less good for larger firms; hence cross-border mergers or migrations

• Unlikely that dual FSA/ Law Society of Scotland regulation will be possible

The result in England

• Many non-lawyers are adding legal services to their existing businesses

• On-line services are opening up the bottom end of the legal market (US firms Legal Zoom and Rocket Lawyer)

• Many law firms are merging but not thinking outside the legal box

• 25% reduction in the number of law firms predicted

‘ABS’ business models in England• Co-op adding legal services to banking and

funeral activities

• Saga adding legal services to insurance and elderly client services

• Accountancy bodies applying for approval to license Probate business

• Personal injury firms merging with claims management companies

• Also, Direct Line, Eddie Stobart, Connells

Combining legal and financial

• Dual regulation probably OK in England

• But is the law firm the right vehicle? Most solicitors lack management skills

• Some IFAs are employing solicitors

• Others are considering hub and spoke structures:

‘Hub and spoke’

The umbrella company:

Holding co

Law firm IFA Accountant

The writing on the wall

“The Legal Services Board has begun work on moving towards regulating lawyers based on the work they do, rather than on their professional title” (Legal Futures report, August 2012).

The result would be “a situation where lawyers are not automatically authorised to practise a particular area of law simply because they have achieved a general qualification”

JVs – a half-way house

• A “solicitors’ separate business”, in which solicitors have a financial interest but does not provide legal services

• Enables solicitors to delegate compliance but be rewarded financially

• Many SIFA members see JVs as the natural progression from arms-length client referrals

• Get properly drafted documentation

Arms-length client referrals

• Appropriate for establishing a relationship and for larger more specialist firms

• Cannot be remunerated financially - solicitors can no longer retain commission

• Most effective if reciprocated by cross-referrals or e.g. client data

• Are usually confined to individuals

• But always open to competition

Client referrals and independence3 options proposed in SRA consultation:

1.Maintain the prohibition against referrals to non-independents

2.Remove the prohibition but flag the virtue of independence

3.Remove the prohibition but require solicitors to justify to clients which financial advisers they recommend

SRA favours option 3

Ex-FSA David Severn’s response

“SRA has allowed itself to be hoodwinked by those who claim the current rules do not accord with an outcomes-focused approach”

“Biased advice, contingent on making sales, would offer less protection to clients”

“Solicitors could suffer reputational damage if the clients they refer experience an inferior service”

The likely outcome?

• Some combination of options 2 and 3?

• The onus would be on solicitors to justify their recommendations

• So they would need to conduct and record due diligence for compliance

• Independents would be able to promote the advantage of conflict-free advice

Providing the comfort factor

The SIFA Directory of Professional Financial Advisers is endorsed by the Law Society

Why solicitors need IFAs

• To reduce reliance on transactional business and provide the basis for regular client contact

• To build client data and start client segmentation

• To present an holistic client proposition and avoid the “necessary evil” view of legal services

• To differentiate them from traditional law firms

Making the IFA/ solicitor connection

• Solicitors specialise, so match your specialisations to theirs

• Avoid the one-way-street of client referrals - the key is working together

• Some IFAs organise their advisers so as to reflect law firm specialisations

• Financial advice complements trust, tax, probate private client work

Which services are complementary?

Re-position your own web site

• Categorise e.g. by reference to private clients, corporate clients and professional connections

• Carry technical factsheets, client newsletters, legal news (see www.legalfutures.co.uk)

• Flaunt e.g. the STEP FS certificate and SOLLA accreditations

• Create a portal for referrals and feedback

Look for business hooks

• Cashflow projections for divorce, older clients, redundancy, PI awards

• Risk assessments for trust portfolios

• Due diligence in selecting DFMs

• Cash management services

• Assistance with compliance

‘What every COLP needs to know’

Providing an audit trail:

• Criteria for selection of IFAs

• Due diligence (stress independence)

• Risk Register (inappropriate referrals)

• ATP Agreement and ToB

• SRA disclosures

Assisting with client marketing

• Provide material highlighting the relevance of money matters to legal advice

• Include legal questions in IFA factfinds for reciprocal business opportunities

• Offer a legal + financial healthcheck

• Hold joint client seminars

Getting down to business

• Hire a venue and invite individual solicitors to business meetings with an agenda of possible topics for solicitors to select

• Create a business plan for FS – people, types of business, minimum values, volumes, revenue, review

• Hold up-date briefing meetings with firms’ management committees

• Invite solicitors to receive your e-bulletins

The last word

“The past two years have witnessed …. a desire for holistic advice from advisers, as opposed to individual services in silos delivered on a transactional basis.

This means that law firms must re-shape their relationships with their clients so that they become trusted advisers”

Sir Nigel Knowles, DLA Piper

Daily Telegraph 25/10/2010

Legal + Financial = Trusted Adviser